Pilgrim's slides on bankruptcy buzz; Sprint to keep Nextel; Idearc shrugs off downgrade; GM, Ford hit

By Stephanie N. Rotondo

Portland, Ore., Oct. 31 - The distressed bond market finished the week out somewhat better, traders reported Friday.

Still, one source noted that "it was not an overly busy day," and others said month-end pricing was keeping them busy.

Pilgrim's Pride Corp.'s debt fell as much as 5 points on continued chatter of a potential bankruptcy filing. The company was previously required to hire a restructuring officer by its lenders, a move seen by most as the next step in a Chapter 11 case.

Meanwhile, Sprint Nextel Corp. will remain just that, as Sprint said it was abandoning its plan to sell off its Nextel unit. Nextel's bonds gained as much as 12 points on the news. But traders gave mixed reports about what happened in Sprint's debt.

Idearc Inc. saw its credit rating cut during the session, but the news did little to move the company's debt structure. The company's term loan actually gained on the day, while its corporate paper closed unchanged to slightly weaker.

Word that the Treasury Department was cinching up its wallet hurt General Motors Corp. and Ford Motor Co.'s term loans Friday. However, GM's bonds managed to rebound from the day's lows, though it still ended weaker on the day.

Pilgrim's Pride slides

Pilgrim's Pride's bonds fell 3 to 5 points on the day after research firm CreditSights Inc. pointed to a looming bankruptcy filing.

A trader quoted the 8 3/8% subordinated notes due 2017 at 12 bid, 14 offered and the 7 5/8% senior notes due 2015 at 29 bid, 34 offered. Another trader pegged the 7 5/8% notes in the mid-30s, but said there was "not much trading."

CreditSights called a potential Chapter 11 filing "highly probable." Pilgrim's previously had to secure a temporary waiver from its lenders in order to avoid breaching a covenant due to losses racked up in the last quarter. The company also said that it plans to use its 30-day grace period on a coupon payment coming due Monday.

"I did not see any prices today, but the paper has been trading flat all week so that is the expectation for sure," a trader said of the bankruptcy rumblings.

"Although the temporary waiver provides Pilgrim's Pride with another 30 days of life, it appears to be more illusionary than substantive as Pilgrim's Pride is restricted from paying interest due Nov. 3 on two debt issues," CreditSights analyst Edward Mui wrote in a report yesterday. "A bankruptcy scenario now seems highly probable after the 30-day grace period for the Nov. 3 bond interest payment expires, leaving bondholders with no viable options."

Sprint to keep Nextel

Sprint Nextel announced late Thursday that it was abandoning efforts to sell its troubled Nextel iDEN network and instead planned to reinvest in the technology.

As the market started to react to the news, one trader said Sprint's bonds fell a couple points, while Nextel-specific bonds gained as much as 12 points. But another trader said Sprint's debt was "definitely stronger" on the news."

The first trader saw Nextel's 6 7/8% notes due 2013 trader at 58, which he called 12 points better. The 7 3/8% notes due 2015 were 10 points firmer around 56 from 46 previously. In Sprint bonds, he saw the 6% notes due 2016 at 68.75, the 8 3/8% notes due 2012 at 80.5 and the 6.90% notes due 2019 at 70.5, all 1 to 2 points weaker.

But the second trader saw the 6% notes at 69, up from around 65 on Wednesday.

Sprint's new plan is to once again partner with Motorola, which helped Sprint create the iDEN network in the 1990s. The network has lost subscribers recently but still has a following, especially in the public safety arena.

"The iDEN network is a key differentiator for Sprint, as it allows us to offer products and services no other carrier in the industry can match," Dan Hesse, Sprint's top executive, said in a statement. "We continue to build on our support for our industry-leading push-to-talk Nextel Direct Connect franchise."

Idearc unaffected by downgrade

Idearc's term loan B shrugged off a ratings downgrade on Friday and moved up by a point as people starting thinking that the hiring of financial advisers may not be so bad, a trader said.

The term loan B was quoted at 42 bid, 44 offered, up from previous levels of 41 bid, 43 offered, the trader said.

In the company's corporate debt, traders saw the bonds virtually unchanged. One source placed the 8% notes due 2016 at 13.5 bid, 14 offered, "a tad softer" from the previous day's levels of 14 bid, 14.5 offered.

"It looks like those 4 points they lost [in the previous session] is their coupon that's coming due in two weeks," another trader opined.

On Thursday, the company had announced that it retained Merrill Lynch & Co. and Moelis & Co. as financial advisers in connection with the review of alternatives related to its capital structure.

"People feel like what they hired Merrill to do could be positive for the bank debt," a trader explained.

The trader added that the advisers news was overshadowed on Thursday by negative third quarter numbers, which is why the bank debt had traded down from 44.5 bid, 45.5 offered in the previous session.

Not everyone was feeling optimistic about the hiring of advisers, as Standard & Poor's lowered Idearc's ratings on Friday morning because of the news.

The corporate credit rating on Idearc was downgraded to B- from B+, the senior secured credit facility rating was downgraded to B- from BB and the senior secured recovery rating was downgraded to 3 from 1. All ratings were placed on CreditWatch with negative implications.

"The ratings downgrade and CreditWatch listing reflects Idearc's announcement that it has retained Merrill Lynch & Co. and Moelis & Co. as financial advisors to review strategic alternatives related to the company's capital structure," S&P analyst Emile Courtney explained in the release.

"Although Idearc has not disclosed the extent of the potential recapitalization and states that there are no assurances it will pursue one, we believe the probability has increased meaningfully that it may undertake significant transactions that we could deem as distressed exchanges," Courtney added.

S&P also said negatively impacting Idearc's ratings is the fact that operating performance has deteriorated at the company.

The agency went on to say that it expects EBITDA to decline about 20% in 2008, compared with a previous estimation of roughly 10%.

As was reported on Thursday, Idearc's EBITDA for the third quarter dropped to $298 million, down 21.6% from $380 million last year, and adjusted EBITDA was $302 million, a 24.1% decrease from $398 million last year.

Revenues for the quarter were $735 million, down 7.1% from $791 million in the comparable period last year, net income for the quarter was $73 million, down 37.6% from $117 million in 2007, and adjusted net income was $76 million, down 40.6% from $128 million last year.

Idearc is a Dallas-based provider of yellow and white page directories and related advertising products.

GM, Ford loans slip

General Motors and Ford Motor both saw their term loans fall in trading on Friday as talk circulated that government funding for the companies is not going to happen, according to traders.

"Treasury came out and said they're not going to put money into car companies, which probably means there's going to be no GM-Chrysler merger," one trader explained.

General Motors, a Detroit-based automotive manufacturer, saw its term loan quoted by one trader at 52.5 bid, 56.5 offered, down from 53.5 bid, 57.5 offered, and by a second trader at 53.5 bid, 55.5 offered, down from 56.5 bid, 57.5 offered.

Ford, a Dearborn, Mich.-based automotive company, saw its term loan quoted by one trader at 54bid, 55.5 offered, down from 55.5 bid, 59.5 offered, and by a second trader at 53.5 bid, 54.5 offered, down from 56.5 bid, 57.5 offered.

In the bonds, GM's benchmark 8 3/8% notes due 2033 were up a little on the day at 32 bid, 34 offered from opening levels of 30 bid, 31 offered. But the bonds were down day-over-day, having closed Thursday at 34 bid, 36 offered.

In related names, GMAC LLC's paper was "off, especially at the shorter end," a trader said. He saw the 5 5/8% notes due 2009 at 86 from 90 previously, and the 7¾% notes due 2010 at 76 bid, 77 offered from 78 bid, 79 offered.

"Obviously the higher priced stuff got hit the worst," he said.

Moody's Investors Service cut its rating on GM's financing arm's long-term senior unsecured ratings to Caa1 from B3. The agency attributed the downgrade to the company's announcement that it was planning a massive debt-for-debt swap.

Broad market mostly better

MGM Mirage's new issue came down from its original issue price, but rebounded from the day's lows, traders reported.

A trader said the new 13% notes due 2013 "really suffered early on," falling below 90 versus the issue price around 93. But by the end of the session, the trader said the bonds came back to close at 90 bid, 91.5 offered.

Another trader said the paper "rebounded a good bit off its lows," closing at 90 bid, 92 offered.

Stations Casinos' 6% notes due 2012 gained a point to trade at 36.75.

Meanwhile, VeraSun Energy Corp.'s bonds saw little action following Thursday's downgrade from Moody's. A trader said the 9 7/8% notes due 2012 moved up 3 points to end at 37 bid, 38 offered, though the 9 3/8% notes due 2017 "didn't seem like they moved," closing around 70.

Sara Rosenberg contributed to this article.

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